Jo Dong-cheol, KDI President, "National Debt Ratio Likely to Exceed 100% by 2050"

"Excessive Government Debt Is a Risk of Government Bankruptcy"
"It Is Also Possible to Speculate That Household Loan Ratios Would Not Have Increased Without Public Support"

Jo Dong-chul, President of the Korea Development Institute (KDI), forecasted on the 1st that the national debt ratio will exceed 100% by 2050, and without pension system reform, the national debt ratio could surge to around 250% by 2070. He pointed out that the impact of low birth rates and aging could pose a more serious problem for government debt than for household or corporate private debt, and that a one-year delay in pension reform would result in tens of trillions of won in additional burdens.

President Jo is scheduled to reveal these views during his keynote speech at the 2nd Plenary Session of the '2024 Joint Economics Conference' hosted by the Korean International Economic Association on the 2nd.

Cho Dong-chul, President of the Korea Development Institute, is delivering a welcome speech at the '2023 Economic Development Experience Sharing Project Performance Sharing Conference' held on the 11th at the Chosun Hotel in Jung-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

In materials distributed in advance, he analyzed, "Considering the unprecedented speed of low birth rates and aging, it is difficult to be optimistic about Korea's fiscal situation," adding, "According to internal KDI estimates, Korea's national debt-to-GDP ratio is expected to exceed 100% by 2050 and is likely to continue rising rapidly thereafter."

He further observed, "If the pension system is not reformed and its shortfall begins to be covered by government debt, the national debt ratio is estimated to surge to over 250% around 2070."

He also pointed out that demographic changes such as low birth rates and aging could have a more severe impact on the government than on households or corporations. President Jo stated, "There is no clear evidence that low birth rates and aging will structurally increase private debt continuously, whereas government debt will decisively depend on demographic changes," adding, "Excessive government debt leads to the risk of government bankruptcy and, in extreme cases, could escalate into issues concerning national sovereignty."

He predicted that if the government debt problem is not urgently addressed, social costs could increase exponentially. He diagnosed, "The social costs of delaying reforms increase exponentially," and "For example, the additional burden caused by a one-year delay in pension reform is estimated to reach tens of trillions of won."

He also pointed out that public institutions influenced the inflation of private debt. He explained, "The rapid increase in household debt since the mid-2010s appears to be due to the expanded support from public financial institutions," adding, "During this period, when defining 'publicly supported loans' as the sum of jeonse deposit loans guaranteed by public institutions such as the Korea Housing Finance Corporation and the Housing and Urban Guarantee Corporation (HUG), HUG loans, and policy mortgages (qualified loans + Bogeumjari loans) from the Korea Housing Finance Corporation, their share of household loans expanded from 9% in 2015 to the 18% range in 2022."

He noted, "It is plausible to speculate that if public support had not surged since 2015, the ratio of household loans to GDP would not have increased," emphasizing, "Notably, in 2022, while general household loans decreased by about 20 trillion won due to rising interest rates, publicly supported loans still increased by 13 trillion won."

From this perspective, he explained that guarantees by public institutions to support low-income households also contributed to the debt problem. President Jo stated, "Of course, guarantees by public institutions have largely been pursued from the standpoint of measures for low-income households rather than purely economic logic," adding, "However, given that the definition of 'low-income households' remains ambiguous, it is necessary to reflect on whether these policies, which have been interpreted too broadly in terms of their target scope, have contributed to the household debt issues we are concerned about today."

This content was produced with the assistance of AI translation services.